Use the Present Value and Future Value Tables Included in Appendix

question 45

Multiple Choice

Use the present value and future value tables included in Appendix 8 and on the textbook companion website.
- The present value of $1,000 to be received in 3 years when interest is 12 percent compounded quarterly is computed by discounting at

• A) 3 percent for 12 periods
• B) 12 percent for 3 periods
• C) 4 percent for 9 periods
• D) 6 percent for 6 periods

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Definitions:

Purchasing Power

The ability of an individual or group to buy goods or services with a given amount of money or currency.

Real Interest Rate

Represents the rate of interest an investor expects to receive after allowing for inflation.

Inflation

The pace at which prices for general goods and services ascend, thus diminishing the capability to purchase.

Real Interest Rate

The interest rate adjusted for the inflation rate, reflecting the real cost of borrowing and the real yield to lenders or investors.